Capital Market Earnings Crashout

**Tyler Crowe** (0:02)
Digesting today's earnings duds on Motley Fool Hidden Gems Investing.
Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by long-time Fool contributors, Lou Whiteman and Matt Frankel. So earnings season is in full swing here. We got a whole bunch of companies reporting. We even related to the oil market. We're going to touch into Halliburton's earnings, more on like a state of the oil market sort of analysis. We'll also hit in the mailbag. But today we're going to start with the two companies that reported earlier this morning, and we could say we're the duds of the earnings reports so far, because they were MSCI and Equifax.
Shares of both stocks were down more than 10 percent in pre-market trading, and as of we're recording right now, MSCI is still down about 11 percent, Equifax is down about almost 7 percent. So obviously the market didn't like what they were seeing. The funny thing was, as I was looking at the results, just as a cursory glance before I got to talk to you guys, is it looked like they both posted improving results, and even MSCI's earnings per share was up almost 20 percent. So guys, what happened here? I mean, Matt, I know you looked at Equifax, Lou, you looked at MSCI. What was going on?

**Matt Frankel** (1:15)
Yeah. I mean, Equifax earnings on the surface at least were not a dud. I mean, 11 percent year-over-year revenue growth, earnings per share grew 13 percent on an adjusted basis and beat estimates. Revenue from the US mortgage business is up 25 percent, which is nice to see given the state of the mortgage market. The company actually doubled its AI-driven cost reduction estimate to $150 million through 2028 Cost reductions are a good thing. The stock was down, like you said, double digits in pre-market. It's rebounded a little bit despite the, but it's still down despite the earnings beat. A few potential reasons and things to flag here. There was a $100 million charge related to a credit miscalculation glitch that happened in 2023
Gap earnings were down 4% year over year as a result, so that's worth noting. The adjusted EBITDA margins actually fell in all of the segments of the business year over year.
Essentially, rising compensation costs, incentives, they're both rising faster than revenue.
And most importantly, there's no easier way to make a stock go down than to lower your guidance. And while they didn't really lower their guidance, they kept their full year. The third quarter guidance was a little softer than expected. The adjusted EPS estimate would actually represent a sequential decline. And investors aren't thrilled, so really this was a solid quarter with a disappointing outlook and margin trends that seem to be scaring investors.

**Lou Whiteman** (2:43)
Kind of a similar story over at MSCI. I don't know if people know this one as well. This former Morgan Stanley unit, it's a market data and analytics company separate from Morgan Stanley now. They grew revenue and earnings by double digits. The earnings number was a little light relative to expectations. Guys, I'm tempted to blame AI here. The company said that expenses were up 9% primarily due to quote higher IT costs among other expenses.
Maybe they are adding to their tech stack. There are also some accounting things going on. They recognize some amortization on related to acquisitions.
Tyler said stock is down double digits. Market just has this one wrong, period. I'm just going to say it. Company is in growth mode. It launched twice as many products in the first half of 26 as it did in all of 2024 Growing does come with costs. The costs are investment in the business. There's nothing wrong with the core business here.

**Tyler Crowe** (3:37)
I want to pick at something a little bit because reading through the lines of both of these, Matt, Equifax says that these AI-driven cost reductions of $150 million, but then their margins were down. Lou, as you said, like the higher IT costs, it's all kind of like, some of it seemed to me implying like tech costs, IT costs, AI costs, token, whatever costs you want to associate with using AI in their business seems to be rising.
The whole theory here was that AI costs were going to drive down personnel costs, to put the big doomer approach was people out of jobs. But it appears that this is actually starting to, for high data companies doing a lot of data processing like Equifax and MSCI, it is becoming a real cost headwind. And I'm curious your thoughts, how is this going to play out? People continue to jump into these frontier models that are getting incredibly expensive and are they going to have to kind of change their AI strategies?